Hartford Financial Services Group Inc. said it will take as much as $3.4 billion of federal bailout money and sell up to $750 million of common stock to bolster capital after large losses on investments.
The 199-year-old life and property insurer announced its plans eight days after saying Chairman and Chief Executive Ramani Ayer will retire by the end of the year.
Citing a “continued uncertain economic environment,” Ayer said the stock sale and taking part in the Troubled Asset Relief Program are important steps in building financial strength and remaining well-capitalized.
“The additional funds will help absorb further losses in its investment portfolio and reduce the strain on capital caused by the weak equity markets,” Standard & Poor’s equity analyst Bret Howlett wrote.
The government gave preliminary approval last month for six big insurers to participate in TARP. So far, Hartford is the only one to accept taxpayer funds.
The TARP program was designed to help banks, and Hartford agreed to buy a small Florida savings and loan to become eligible.
Among the other insurers, Allstate Corp., Ameriprise Financial Inc., Principal Financial Group Inc. and Prudential Financial Inc. declined bailout funds, while Lincoln National Corp. has not disclosed its plans.
Lincoln is eligible to receive $2.5 billion from TARP. A company spokeswoman was unavailable for immediate comment.
Shares of Hartford fell 85 cents, or 6 percent, to $13.23 in morning trading on the New York Stock Exchange. Hartford’s 52-week high is $73.89, set last June 17.
The Hartford, Connecticut-based company said it plans to sell its common stock over time and use net proceeds for various purposes, including possible debt buybacks.
The $750 million is 17 percent of Hartford’s $4.46 billion market value as of Thursday’s close, Reuters data show. Goldman Sachs & Co. is arranging the stock offering.
“The TARP money gives Hartford more financial flexibility,” said Drew Woodbury, an analyst at Morningstar Inc. in Chicago. “We were moderately surprised at the stock issuance, given that it is already getting up to $3.4 billion and that the stock trades at a little over half of book value.”
Hartford lost $2.75 billion in 2008, hurt by investment losses and the cost of guarantees it provided to holders of variable annuities.
To shore up its finances, the company raised $2.5 billion in October from German insurer Allianz SE.
In connection with that agreement, the companies extended the term of Allianz’s warrants to buy Hartford common stock to 10 years from seven years, a Friday regulatory filing shows.
They also reduced the size of a planned payment to Allianz by Hartford to $200 million from $300 million, and extended the due date for the payment to Oct. 15, the filing shows.
(Reporting by Jonathan Stempel; editing by John Wallace)
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